Investors often turn to Gold as a safe haven in times of economic uncertainty or international conflict, as in the Russia-Ukraine War.
With the inflation rate soaring and the market trading at a loss from its previous highs, many investors are searching for an asset that is safe and has a track record of growth which is Gold.
Gold trading online is a popular investment choice for a variety of reasons. Gold has qualities that make it an ideal alternative to conventional securities like bonds and stocks. They see Gold as a storage unit of worth even though it’s an investment that doesn’t generate cash flows.
Some view Gold as a way to hedge against inflation since the Fed’s actions to boost the economy – like low-interest rates and the government’s spending have caused inflation to rise.
Here are five options to invest in Gold and an overview of the potential risks that go along with each.
Table of Contents
1- Gold bullion
One of the most emotional ways to own Gold is to buy Gold in bars or coins. It’s a pleasure seeing it and touching it. However, ownership has serious disadvantages when you have more than the smallest amount. One of the most significant drawbacks is the need to protect and insure physical Gold.
When buyers purchase physical Gold, they hope to profit from increases in the price of the commodity. It is not the case for those who own a business (such as a mining company) in which the business can generate more significant quantities of Gold and consequently earn greater profits, which drives the value of its investment up.
You can buy Gold bullion by contacting an online retailer like ISA Bullion or even an individual dealer or collector. Pawn shops can also offer Gold. Take note of Gold’s spot price- the cost per ounce at the moment in the market – when you’re buying so that you can make a profitable deal. It’s possible to trade with coins rather than bars as you’ll pay an amount for the coin’s collector value, not the Gold content. (These might not all be made out of Gold, but below are nine of the world’s most precious coins.)
Risks: The most significant risk is that someone might physically steal the Gold from your possession if you fail to keep your assets safe. The second most crucial risk comes when you dispose of your jewelry. Finally, getting the maximum market value for your possessions is difficult, particularly if they’re just coins and you need cash quickly.
As a result, you may need to sell your possessions at a lower price than they would otherwise be able to fetch in a national market.
2- Gold futures
With Gold futures, you can speculate on the rate at which Gold prices are rising or falling, and you could even receive physical Gold deliveries. However, physical delivery isn’t the thing that drives investors to speculate.
The main benefit of using futures to purchase Gold investments is the massive amount of leverage you can avail. It means you could own a considerable amount of Gold futures for a modest amount. If the Gold futures market moves in the same direction as you expect it will, you could earn lots of money quickly.
Risks: One of the primary risks associated with futures trading comes from the inherent feature of leverage. If Gold is a threat to you, you’ll have to contribute significant amounts of money to hold your position (called margin), or the broker will shut down the contract and incur losses. While the futures market can allow you to earn lots of money, you could also lose it all at once.
It is generally accepted that the market for futures is designed for investors with sophisticated tastes, and you’ll require a broker that permits futures trading.
However, not all significant brokerages offer this service.
3- ETFs that hold Gold
One of the most rewarding ways to possess Gold is to buy bars or coins. You’ll be able to enjoy seeing it and touching it. However, ownership also comes with some disadvantages if you own more than the smallest amount. One of the most significant drawbacks is the need to secure and protect physical Gold.
To earn a profit from physical Gold, the buyers are entirely dependent on the price of Gold rising. This is different for the owners of businesses (such as mining companies) that can generate more significant quantities of Gold, which means greater profits, which drives the value of its investment up.
Gold bullion can be purchased in many ways via an online dealer like ISA Bullion APMEX, JM Bullion, or even an individual dealer or collector. In addition, pawn shops may offer Gold. Take note of Gold’s spot price- the cost per ounce in the market – before purchasing it. Then, you’re able to make a reasonable offer.
You should deal using bars instead of coins as you’ll pay an amount for the coins’ collector value instead of only its Gold content. (These may not be all made out of Gold, but these are nine of the world’s most expensive coins.)
The most significant risk is that someone might physically steal the Gold you own if you fail to keep your assets safe. The second most important risk is if you trade in your precious metals. It isn’t easy to obtain the entire market value of your Gold, particularly if they’re not precious metals and you need the money on an immediate basis. As a result, you may need to accept selling your possessions at a lower price than they could otherwise fetch on a national marketplace.
4- Mining stocks
Another method to profit from the rising Gold prices is to own mining companies that manufacture the material.
This is a good option for investors because they can earn money from Gold in two ways. In the first instance, if Gold price rises, then the miner’s earnings also increase. Additionally, the miner can increase production over time, resulting in an additional benefit.
Risks: Whenever you decide to invest in stocks that are not individuals you own, it is essential to research the business thoroughly. Many miners are available to take big risks, so you must choose a reputable company in the field. It’s best to steer clear of smaller miners and those who still need to operate a mine. As with the rest of the stocks mining, stocks are quite unpredictable.
5- ETFs that hold mining stocks
Do you want to avoid digging too deeply into the individual companies that make Gold? Consider purchasing an ETF. ETFs that are Gold miner ETFs expose you to some of the biggest Gold miners on the market. Because these funds are spread across different sectors, you aren’t impacted in the event of poor performance by one particular miner.
The most significant funds in this area include VanEck Vectors ‘ Gold Miners ETF (GDX), VanEck Vectors Junior Gold Miners ETF (GDXJ), and iShares MSCI Global Gold Miners ETF (RING). The expense ratios for these mutual funds range from 0.51 percent, 0.52 percent, and 0.39 percent, according to October 2022 statistics. These funds provide the advantages of owning individual mining companies and the security of diversification.
Risks: While the diversification of the ETF safeguards you from one company going down, it doesn’t shield against something that impacts the entire industry, such as a prolonged drop in Gold prices. Be cautious when choosing your investment because not each investment is equal. Certain funds have miners with established status, and other funds have junior miners, which can be riskier.
Why do investors prefer Gold?
“Gold has a proven track record for returns, liquidity, and low correlations, making it a highly effective diversifier,” says Juan Carlos Artigas, global research director at the World Gold Council.
These are the qualities that are crucial for investors:
The return on Gold has performed better than bonds and stocks over specific periods, but it’s only sometimes stocks and bonds have been able to beat Gold.
Liquidity: If you’re purchasing certain types of Gold-based securities, you can quickly transform them into cash.
Low correlations: Gold typically is different from bonds and stocks. That is, when they increase, Gold can fall, or vice versa.
Additionally, Gold has many other advantages that could be beneficial:
Diversification: As Gold is typically not related to other assets, it could aid in diversifying portfolios, which means the overall portfolio will be less unstable.
Store of value for defense: Investors tend to retreat into Gold trading when they see economic dangers. Thus, it is a defensive investment.
These are just a few advantages of Gold. However, this investment, like any investment – isn’t without risk and pitfalls.
Although Gold can be a good investment, at times, it isn’t easy to know what time to buy it. Since Gold does not generate the cash flow it needs, it’s hard to tell when it’s expensive. However, this is different for stocks, which provide better indicators based on the company’s earnings.
Additionally, since Gold can’t generate cash flow, investors need to depend on another person paying higher prices for Gold than they do to earn a profit. However, the owners of businesses – for example, Gold mining companies – can benefit from the price increase of Gold and the company increasing its earnings. And quite frankly, there are many ways to make money and gain by investing in Gold.
Bottom line
Gold isn’t for everyone. Some investors prefer placing their bets in cash-flowing companies instead of relying on someone other than themselves to pay in exchange for this shiny metal. That’s why famous investors like Warren Buffett caution against investing in Gold and instead recommend buying cash-flowing businesses. Additionally, holding funds or stocks is easy as they’re highly liquid, meaning you can change your investment into cash if you want to.
